The Influential Expectations Hypothesis: 1st publication

Posted: November 22, 2015 in Research papers
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Vintage megaphoneThe first paper to present the Influential Expectations HypothesisIEH has seen the light of day (in Greek and in English at the same time). It has been published in the “Greek Economic Outlook”, a peer-reviewed scientific journal (albeit of local character) published by the Centre Of Planning and Economic Research (KEPE)   vol. 28, October 2015.

The Influential Expectations Hypothesis is a generalization of the Rational Expectations Hypothesis in the presence of heterogeneity of agents, private information, and specialization in predicting macroeconomic variables -all three actually observed phenomena. As a generalization, it includes REH as a special case.The hypothesis is not really behavioral -my aim is macroeconomics and to arrive at the aggregate level starting from micro-foundations that are consistent with current economic theory. I am not interested in hypothesizing about or modelling how the human mind works.

The specific paper presents how this expectations-formation hypothesis is constructed (the paper is months old -the theoretical foundations have since been refined and fortified considerably), a theoretical application on the Cobweb model (the one also used by John Muth for the first presentation of the Rational Expectations Hypothesis-REH), a comparison of theoretical results with those obtained under the REH (they differ markedly), as well as an indicative econometric application showing that the data support the IEH result.

The good thing about the IEH hypothesis is that in light of  the level of complexity it allows into a model, it results in a very intuitive formulation which moreover permits closed form solutions. The even better thing about it, is that it brings in really new results: I have also applied the hypothesis to the benchmark Optimal Growth model, and what my eyes saw emerging was fascinating (as well as realistic and convincing). I will submit the more mature theoretical formulation together with the Optimal Growth model application to an international journal for review and we will see what happens.

The Greek version of the paper:

2015 Papadopoulos A GREEK Influential Expectations Hypothesis Greek Economic Outlook 28


The English version of the paper:

2015 Papadopoulos A ENG Influential Expectations Hypothesis Greek Economic Outlook 28


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